Revenue and profit were under pressure for a short time. After deducting non-performance growth, the company achieved revenue of 7.149 billion yuan in 24Q1, or -4.6% year over year. The attributable to mother and net profit were 348 million, 310 million, -9.8%, and -4.4% year-on-year respectively. Non-recurring profit and loss were 38 million yuan, a year-on-year decrease of 24 million yuan, mainly due to a year-on-year decrease of 13 million yuan in government subsidies. The decline in the growth rate of net profit after deducting non-net profit was slower than the decline in revenue, mainly due to a year-on-year improvement in gross margin and a year-on-year decrease in impairment losses.
Gross margin improved year-on-year, and raw material prices consolidated at a low level
The 24Q1 company's comprehensive gross margin was 29.7%, +1.02pct. We believe that the improvement in gross margin may be due to business restructuring and lower raw material prices. The average price of asphalt in the 24Q1 asphalt market fell 2.64% year on year. Since April, the average price of asphalt has consolidated at around 3,700 yuan. The average price of asphalt is 3,671 yuan/ton, down 0.46% year on year from the average price in 23Q2. If the price of asphalt falls further, we judge that there is still room for improvement in the company's gross margin after 24Q2.
Impairment losses decreased year over year, and net interest rate declined slightly
The cost rate for the 24Q1 period was 20.4%, down 1.07pct year on year, and sales, management, R&D, and finance expense ratios were +0.51, +0.25, +0.32, and -0.01pct, respectively. The decline in revenue caused various expenses to not be effectively diluted. In 24Q1, asset and credit impairment losses were $163 million, a year-on-year decrease of $14 million, and fair value change losses increased by 8.28 million. Under the combined impact, net interest rate was 4.78%, down 0.28 pct year-on-year.
The net operating cash flow for 24Q1 was -1,889 million yuan, with a year-on-year decrease of 1,917 billion yuan. The pay-to-cash ratios were 102.92% and 135.37%, respectively, -6.78 pct and -8.55 pct year on year. 24Q1 accounts receivable were $10.79 billion, up $1,224 million from the beginning of the year, and other accounts receivable increased by $281 million from the beginning of the year.
Retail-side business resilience is highlighted, maintaining a “buy” rating
The company's diversified categories are expanding smoothly, and the sand powder business is growing rapidly. The sand powder group's retail side relies on the company's channel outlets to increase the coverage of sand powder products, and the engineering side uses the factory as the starting point to establish an integrated “sales technology and production service” company to fully improve response speed and service quality. Resilience on the retail side is prominent. In '23, retail channel revenue accounted for 28%. In '23, Civil Construction Group achieved revenue of 8.18 billion yuan, +34.6% over the same period. Focusing on the dual main business development strategies of waterproof and moisture-proof systems, the retail side is expected to maintain rapid growth. We slightly raised our profit forecast. We expect the company's net profit to be 28.2, 32.4, and 3.74 billion yuan in 24-26 (previously the company's net profit to mother was 28, 32.3, and 3.72 billion yuan), corresponding PE was 11.6, 10.1, 8.8 times, and approved to give the company 17 times PE in 24 years, corresponding to a target price of 19 yuan, maintaining a “buy” rating.
Risk warning: Real estate is under strong downward pressure, risk of depreciation, and sharp rise in raw material prices.